Decision-making procedure and remuneration principles

1.1 Decision-making procedure

Varma’s Board of Directors annually decides on the principles and maximum amounts of the company’s performance-based remuneration, as well as the personnel groups that are included. The Board of Directors also decides on the remuneration of the President and CEO and the members of the Executive Group, according to the ‘one-over-one’ principle, in which the decision is made by at least one organisational level above the superior of the person in question.

1.2 Composition and authority of the Nomination and Compensation Committee

The preparation of remuneration matters to be discussed by the Board of Directors is the responsibility of the Nomination and Compensation Committee, appointed by the Board of Directors. In 2015, the Committee consisted of Chairman of the Board of Directors Berndt Brunow and the Vice Chairmen of the Board of Directors, Jari Paasikivi and Antti Palola. Remuneration decisions are made by the Board of Directors.

1.3 Contents of the performance-based remuneration schemes

Varma has three performance-based remuneration schemes in use:

the incentive scheme for key persons

the separate scheme for Investment Operations (see 1.3.2) and

the incentive scheme for personnel (see 1.3.3).

The key principles of performance-based remuneration are as follows:

The schemes support Varma’s long-term objectives, which include solvency, the return on investments and cost efficiency.

Remuneration should be planned so as to prevent unhealthy risk-taking. Therefore, the schemes include pre-defined maximum amounts of remuneration and a force majeure clause, which gives the Board of Directors the right to discontinue the schemes before the end of the period if the company’s economic position is jeopardised (see 1.5 for more details).

The Board of Directors decides on the payment of performance-based remuneration annually after the end of the incentive period.

The share of performance-based remuneration of total remuneration shall increase along with an increase in the person’s responsibility and capacity to influence the performance of other Varma employees and the success of the company.

Compliance with the norms regulating the activities is also considered when making remuneration decisions. Performance-based remuneration is not paid or it will be recovered as an unjustified gain if it is discovered that the person in question has behaved contrary to Varma’s internal guidelines or ethical principles, legislation or official regulations or guidelines.

Remuneration decisions must always be made according to the ‘one-over-one’ principle, i.e. by the supervisor of the supervisor of the person in question.

1.3.1 Incentive scheme for key persons

The purpose of the incentive scheme is to commit key persons to Varma and its objectives, which is why performance-based remuneration is determined on the basis of common, company-level criteria. The extent to which the objectives set for the criteria are achieved linearly determines how big a share of the maximum sum of the incentive is distributed.

The incentive scheme is based on incentive periods of three calendar years. At the beginning of each incentive period, the Board of Directors identifies the persons covered by the scheme, their maximum remuneration, and the remuneration criteria and their indicators.

Those included in the incentive scheme for key persons are not part of the incentive scheme for personnel described in section 1.3.3; their remuneration is determined solely on the basis of the incentive scheme for key persons.

In the incentive scheme for key persons, the maximum bonus paid to the CEO corresponds to his 12 months’ salary, the maximum bonus paid to members of the Executive Group corresponds to their 6.5 months’ salary, and the maximum bonus paid to other designated key persons corresponds to their 3.5 or 4.5 months’ salary. The scheme covers a maximum of 40 Varma employees.

A share of the CEO’s bonus, and that of other members of the Executive Group, that corresponds to no more than 6 months’ salary is paid within one month following the granting of the bonus, and the remainder within three years in three equal instalments (1st year: 1/3; 2nd year: 1/3; and 3rd year: 1/3).

The Senior Vice-President of Investments and other Investment Operations personnel do not participate in the incentive scheme for key persons or in the former long-term incentive scheme.

1.3.2 Separate scheme for Investment Operations

The aim of the Board-approved separate scheme for Investment Operations is to benefit from added value that is created if Varma’s solvency and return on investments develop, in the long term, better than those of a peer group of competitors. The separate scheme covers, in addition to the Senior Vice-President of Investments, a maximum of 50 key persons in Investment Operations.

Personal maximum remuneration is based on the last salaried month of the previous calendar year and corresponds to a maximum of 12–14 months’ salary.

A share of remuneration that corresponds to no more than 6 months’ salary is paid within one month following the granting of the remuneration, and the remainder within three years in three equal instalments (1st year: 1/3; 2nd year: 1/3; and 3rd year: 1/3).

1.3.3 Incentive scheme for personnel

All Varma employees are covered by an incentive scheme for personnel, with the exception of personnel who are covered by the incentive scheme for key persons (see section 1.3.1 above) and the separate scheme for Investment Operations (see 1.3.2 above). Remuneration is paid from one scheme only.

The amount paid as an annual bonus is determined on the basis of the achievement of personal objectives agreed on for the year 2015 in development discussions and the company’s result; the higher the person’s possibility to influence the company’s result, the greater its weight.

The basis for the maximum annual remuneration under the incentive scheme for personnel is determined by the person’s position and monthly salary. The maximum bonuses under the scheme correspond to 1–4 months’ salary.

1.4 Remuneration in relation to performance

In all schemes, performance-based remuneration is dependent on the achievement of the criteria based on performance indicators. The extent to which the objectives set for the criteria are achieved linearly determines how large a part of the maximum sum is distributed.

1.5 Basis for performance measurement and risk weighting

In all of Varma’s incentive schemes, performance measurement is based on objective criteria, the realisation of which can be independently verified.

Apart from maximum remuneration determined in advance, the risk inherent in the incentive schemes is managed such that the Board of Directors has reserved the right to discontinue the schemes before the end of the incentive period. The discontinuation can be based on the Board of Directors’ assessment that Varma’s economic position is seriously jeopardised due to a reason inside or outside the company.

Excessive risk-taking is also prevented by a maximum risk level confirmed by the Board of Directors.